Letters of credit were posted as security for a loss fund in an off-short based rent-a-captive reinsurance program. When the reinsurance program ended, and the remaining claims were finalized, it was agreed that the obligors on the letters of credit had satisfied their obligations under the program and that the letters of credit should be returned. The party holding the letters of credit contended, however, that they were legally entitled to retain the letters of credit for use in unrelated rent-a-captive programs. The obligors sued, seeking damages for the failure to release the letters of credit, alleging breach of fiduciary duty and violation of Connecticut’s Unfair Trade Practices Act. The district court denied a motion to dismiss, relying upon the fact that the letters of credit were the property of the obligors, but that the holder was exercising complete control over the instruments. WEB Management LLC v. Arrowood Indemnity Co., Case No. 07-424 (USDC D. Conn. Mar. 5, 2008).
This post written by Rollie Goss.